Posted tagged ‘Ceridian’

Yesterday, NelsonHall published its “Targeting Payroll Outsourcing” report for our clients, so I thought it would be appropriate to briefly touch on some of the findings. The global payroll outsourcing market was estimated to be $12bn in 2010. Currently, the mid-market (50%) combined with the national segment makes up ~90%, while large multi-nationals make up the remainder.

While the mid-market segment is quite large, majority of growth is expected from the large multi-national market because of the increase in demand for multi-country payroll across all regions. In fact, the desire for multi-country standardization has been reflected in NelsonHall’s HR Outsourcing Confidence Index (HROCI) for some time now. We are seeing a shift from multi-country standardization on a global level to more of a regional level.

The drivers for payroll outsourcing have remained the same overall, but the rankings have changed. The number one reason for outsourcing payroll continues to be cost reduction with ~85% of all buyers citing this objective. Moving up one notch is the desire to have a multi-country platform managed by a single vendor to obtain global visibility of cost and aggregated reporting of data. Finally, the third most important driver cited for outsourcing payroll is to ensure compliance and manage risk due to continual changes in tax laws including Sarbanes-Oxley in the U.S., and labor contracts.

Another interesting change worth noting is the shift that has occurred with who is leading the discussion to outsource payroll. In 2009, HR spent the largest proportion of time discussing the decision at 83%, with the CFO / finance department allocating ~70% to it. This year, the CFO / finance department is spending the biggest proportion of time on discussions at 86%, while HR is spending ~80%. Two main reasons explain why the CFO is spending the most time leading discussions. First, payroll often falls under finance departments in Europe, and second, the CFO is involved when cost is the primary driver.

One final thing I’d like to point out now is the 3% global increase since 2009 in self-service and electronic statements that are resulting in less time, money, and paper consumed, along with the increasing popularity of paycards as an alternative to paper payroll checks. Paycards save employers >50% of the cost of issuing a check. An estimated 2.5% of employees in the U.S. are paid via paycards with HRO providers such as ADP and Ceridian offering paycards on a standalone basis.

The payroll report goes into greater depth on these topics and others including market size and growth estimates, technology platforms utilized, and estimated vendor revenues and market shares to name a few.

Amy L. Gurchensky, Research Analyst, HRO, NelsonHall

Interested in reading the latest HRO news from NelsonHall? Subscribe to our newsletter by emailing amy.gurchensky@nelson-hall.com with “HRO Insight” as the subject.

It is uncommon to see a multi-process HR outsourcing (MPHRO) provider with a go-it-alone strategy. Beyond the services a particular MPHRO service provider considers core, you will usually find other select HRO vendors. The option to operate in a networked HRO supply chain environment can be a valuable choice. Some benefits include:

Providing clients with the option of selected best-of-breed software applications with the primary provider managing the interfaces and integrations under one contract

Investing in what the MPHRO vendor does best and offering a wider range of service options through partnerships

Entering new geographies faster with less investment, an option especially seen in knitting together global payroll and increasingly in multi-country RPO

Buying time to develop more robust internal offerings

Creating a pool of potential investments or M&A targets.

This week, NorthgateArinso (NGA) and Workday announced a partnership to bring multi-country payroll to the Workday cloud. Workday 16 customers will have the option to access NGA’s payroll processing capabilities in 51 countries through NGA’s new euHReka Inclusion Framework.

Workday, launched in 2006, is one of the first and largest start-ups to provide a SaaS-only HR ERP. Revenues are estimated to be ~$150m this year with ~210 customers, most in the mid-market, but some are large market clients with 55k to 100k employees. Still U.S.-centric in revenues and clients, Workday is expanding into the U.K. and Canada and plans to expand further in Europe in 2012. Workday is in a fast growth mode, targeting a 100% increase in revenues for 2012. It is busy selling, implementing new clients, and building out a full suite of HR and financial cloud-based ERP services. In the meantime, it can offer clients greater options via its partner network. In addition to NGA, other partners for multi-country payroll include ADP, Patersons, and SafeGuard World International.

Another example comes from Ceridian, which is expanding its investment and service partnership with Dayforce. The two have been partnering since 2009 to offer InView, a platform SaaS solution that blends Ceridian’s payroll, human resources, and benefits administration offerings with Dayforce’s workforce management software application. The expanded InView HR and Self-Service is to be released in 4Q 2011 and new payroll functionality is on track for 1Q 2012.

InView is starting out quickly as a successful partnership. Ceridian set a target of 300 clients for the first year and exceeded that number in six months. As more clients go live, the partnership will have to carefully balance service with growth to ensure long-term success.

HRO vendor partnerships are not always successful and must be carefully structured and managed, especially when the vendor partners may well compete with one another in some markets or services. With care, this can be a strategy with benefits for clients and the HRO vendor partners.

Linda Merritt, Research Analyst, HRO, NelsonHall

Interested in reading the latest HRO news from NelsonHall? Subscribe to our newsletter by emailing amy.gurchensky@nelson-hall.com with “HRO Insight” as the subject.

HRO service providers can derive significant value from producing and sharing research information. Vendors can show thought leadership, establish service and subject matter creditability, and reinforce brand differentiation, even as they gain a source of marketing materials and a lead-in to client discussions, as well as some free public relations coverage.

Much HRO research is designed to directly reinforce the need for the services and consulting offered by the service provider. A recent article by Ceridian discusses whether U.S. employers will drop employee health care plans when the Patient Protection and Affordable Care Act (PPACA) coverage requirements become effective in 2013. After providing some PPACA information, Ceridian moves to support services it offers, specifically consumer driven-health plans and health saving accounts.

When providers are not conducting primary research, it is important to reference other reputable resources. In this case, Ceridian quotes America’s Health Insurance Plans (AHIP), which recently reported that enrollment in Health Savings Accounts (HSAs) had reached 11.4m people in January 2011, a more than 14% increase over 2010. According to the AHIP, HSA enrollments have nearly doubled in the last three years and large group coverage was up 26% last year. Ceridian also quoted its executives, one of its own statistics, and ended with links to its web pages on CDHCs.

This is a solid, but perhaps overly focused on service offerings and marketing, communication designed to help it further tap a market where only 11m of a potential 160m are currently enrolled in an HSA.

A second example comes from a Mercer press release about the impact of automatic enrollment on defined contribution savings rates. It also directly supports Mercer services and it additionally offers information that is a bit more consultative.

Mercer used its own database of its 1.2m DC plan participants to show the positive impact of automatic enrollment and automatic increases on contribution rates. Participants who were automatically enrolled in their plan and use the automatic contribution increase have a 25% higher contribution rate (4.4%) than those who do not use the feature (3.5%). Even better savings rate results come from self-enrolled participants (7.4%), and those who do self-directed increases, had the highest rate of all (8.5%). Company executives are used to further the messaging by commenting that those who self-enroll and set their own contribution rate contribute nearly two and half times more than those who are automatically enrolled.

With a bit more subtle communication, Mercer is establishing that it is a major player in DC by sharing information on what its 1.2m participants are actually doing that can help employers make policy decisions, support additional consulting, and reinforce the need to keep up proactive employee communications programs (which is a brand differentiator for Mercer) to support maximum effectiveness of the offered benefits of a DC plan.

Do you look at your vendor as a trusted and value-added source of information?

Last week, I discussed the four market segments of multi-process HR outsourcing (MPHRO) as defined in my 2011 NelsonHall MPHRO report: multi-country standardization, client-specific shared service transformation, core business focus, and technology-led HR service enhancement. This week, I’ll examine success factors for service providers within each segment.

In the “multi-country standardization segment,” which is the segment with the highest growth rate for the next five years, it is critical for vendors to be able to support a client’s operations across a wide range of countries including emerging markets. Providers must also be able to rollout standardized HR administration and payroll to create a global system of record. Examples of service providers operating in this segment include ADP, HP, and NorthgateArinso.

To be successful in the “client-specific shared service transformation segment,” the largest of the four, vendors must provide HRO support directly or through a partner for all HR service lines (i.e., payroll, benefits, learning, RPO, and workforce development services) and have a high degree of multi-shore delivery capabilities to support clients in various locations. Equally important is a service provider’s ability to be able to work with the client’s existing HR technology. One of the biggest challenges faced by vendors in this group is getting clients to transition more than just back-office functions to its offshore service centers to reduce operating costs. Service providers operating in this segment include those that have been long-term players in the MPHRO market such as Accenture; IBM; Aon Hewitt; ACS, a Xerox Company; and U.K.-based Capita.

Within the “core business focus” market segment, success is contingent on a provider’s ability to quickly deploy HR services and be accessible when expertise is required. In terms of HRO offerings, standardized HR administration and payroll are a must and providing support for talent management services is very appealing. The biggest challenge for vendors operating here is all the competition that exists from some of the following vendors: Genpact, TCS, Talent2, Infosys, HCL, Wipro, and Caliber Point.

Success in the final segment, “technology-led HR service enhancement,” requires vendors to provide their own standard technology for HR administration and payroll that includes talent management functions. Also, it’s important that this technology be rolled-out relatively quickly. Providers that fall within this segment mirror the multi-country standardization segment, but also include vendors such as Ceridian.

There’s lots of room in the MPHRO market for all types of buyers, so it’s critical for service providers to decide which segments are of strategic value and to define their sweet spots in their MPHRO portfolios and fill in capability gaps where contracts can be lost to competitors.

As one of NelsonHall’s research analysts, I follow what is happening in the various HRO markets. The simplest method is reading press releases, to which we add our commentary in our tracking service. As a reader, you see a portion of this analysis in our HRO Insight Blog and HRO Insight Newsletter.

On my own time, I like to play basic computer and online games. One of my favorite types is hidden object games where you follow clues to solve puzzles. Occasionally, tracking press releases is a bit like a virtual scavenger hunt for the larger objective.

Let’s take a look at an example with Ceridian’s recent announcement of its acquisition of Versult Group, Inc. Versult Group is a workforce management consulting firm acquired to enhance Ceridian’s implementation, training, and support services for its InView Workforce Management (WFM) solution. It is a straightforward article, easy to cover as is, and then I followed one clue to another and ended up with a richer story. HRO analyst fun!

Back in February 2011, Ceridian announced its partnership with Dayforce to launch InView. The two partners began working together a year earlier to integrate Dayforce’s WFM software suite into Ceridian’s payroll and HR administration services and ready both teams for launch. Ceridian also made an equity investment in Dayforce, which had already raised $20m, including $10m from Bridgescale Partners in July 2010.

Versult was one of seven Dayforce implementation partners and Versult had already performed implementations with Ceridian. As a bonus to Versult’s experience with WFM system implementation, it brings its own mobile access application, Versobile, to Ceridian.

The payoff so far is that Ceridian’s investments are seeing rapid initial client acceptance. The platform has already grown to 90 Ceridian customers, rapidly escalating from 20 in February 2011.

This is a good, well-thought-out strategic move for Ceridian. It gets to cost effectively expand its SaaS service portfolio, leverage the strengths of its current offerings, increase scope with its client base, and add an experienced implementation team. It also has an equity stake in WFM, an increasingly important service line given employer concerns with cost control and the capability for rapid and effective workforce scaling.

Let’s leave this chapter of the story with a puzzle. How long will Ceridian be satisfied with a partnership with Dayforce, the WFM software source, when it felt the need to acquire Versult, the implementer?

Now for HRO vendors large and small, how are you solving your piece of the HRO SaaS puzzle?

How many ways can a HRO vendor differentiate? The lowest total cost, the latest and greatest in technology, the broadest range of services in the most places, etc.? When there are multiple reputable service providers, vendors have to reach further to create HRO differentiation.

In the early days of HRO, it was sufficient for a vendor to provide services that were as good as what had been provided in-house, becoming the base of most service levels (SLAs). HRO vendors quickly found that meeting SLAs did not equate to overall client satisfaction, with clients stating that while they may have been getting what they contracted for, they were not getting what they wanted or needed.

Today, “as good as” is not good enough. HRO service providers need to know more than the client in each service area. Knowing more may be in the form of compliance and reporting expertise, local knowledge of covered geographies, advanced application use, or even change management expertise. Client confidence that the selected vendor does indeed “know how” is important. Confidence that the vendor will be a partner in what happens next is even rarer and is a key differentiator that top tier HR clients seek.

Times of uncertainty create opportunity to build client confidence with your ability to see around corners or at least keep up with the twists and turns. Consulting capabilities are particularly important in HR. But, even top consulting capabilities will not build the HRO practice if there is no flow-through of learning and innovation as well as improved process and performance.

Many HRO service providers with roots in consulting offer forward-looking research, publications, webinars, and even conferences to help clients keep up with best practices, new trends, and regulatory happenings, all while demonstrating thought leadership and subject matter expertise. Many names come easily to mind including Accenture, ADP, Aon Hewitt, Ceridian, IBM, and Mercer.

For example, Towers Watson has published human capital research and recently released its latest HR services report. Kenexa’s client conferences also offer sessions of broader related HR practitioner interest. Finally, Infosys provides a good example of application expertise and consultative relationship management when it brings tailored ideas to clients on how they can improve their processes.

Vendors that offer multiple service lines or are an industry leader in a particular area can cross data streams. Think of ADP’s weekly report on employment or Administaff who has PEO trends that show which U.S. regions are leading and lagging in returning to growth for the small business market. Also, ACS, a Xerox Company and IBM support client interaction opportunities that can lead to innovation communities.

How can data from IT, F&A, or even Ceridian’s Pulse of Commerce Index be tapped for HRO? Think about how you can go beyond the obvious and use everything in your kit bag to develop leverageable and differentiating HR and HRO insights.

While we wait to see 2010’s full year HRO financial results, we can review activities in the fourth quarter. HRO growth is occurring across most industry segments, with the public sector lagging. The fastest growth rates are still outside of the mature economies in North America, U.K., and Europe for the global providers, although the U.S. is starting to rebound.

Benefits administration showed a nice level of new business activity, even in the mature areas. Congratulations to Fidelity for the competitive wins of AT&T for both defined contributions and defined benefits and Office Depot for broad benefits administration services. There were also notable benefits wins by Mercer, Aon Hewitt, Ceridian and Xafinity. Meanwhile, we are still waiting for a major jump start in learning and multi-process HRO contracts.

The volume of new business and growth with existing clients will continue to rise in 2011, but the pricing environment will not likely ease much in 2011 as buyers remain price sensitive. Maintaining efficiency will be critical in order to win with both clients and investors. For example, The Right Thing recently introduced dedicated Solution Teams to manage the transition from sales and implementation into operations. Managing implementation was a costly problem for service providers and customers in multi-process HRO for years, so it is good to see the lessons learned extending to other areas of HRO.

Preparing for further growth also continues in partnerships, mergers, and acquisitions. Aon Hewitt is expanding its benefits capabilities in Scotland via a pension services partnership with Babcock International Group. Towers Watson is jumping back into the benefits fray with a partnership with Wage Works and the acquisition of Aliquant, a mid-range benefits service provider.

Fourth quarter good news stories continued with revenues up in most areas of HRO. Several HR service providers reported a 4% to 6% increase in revenues including ADP Employer Services up 6%, Aon Consulting up 4%, and Mercer up 6%. RPO and staffing companies continued recovering at a rapid pace, leading the way out of the downturn just as they led the way into it. Revenues for Manpower were up 19% and The Right Thing’s revenues were up 30%. GP Strategies, Kelly, and Kenexa all had increased revenues in the mid-20% range.

Operating margins are remaining consistent as the HRO industry adds back employees indicating they will be able to manage growth while keeping an eye on hard-won profitability. Investments in technology and global service delivery capabilities will now be bearing fruit and should also support margin growth.

Happy New Year – may 2011 be a great year for us all in the HRO community in every way!